What the second bear market since the start of the pandemic might signal.
The stock market fell 3.9 percent yesterday as measured by the S&P 500, closing the day nearly 22 percent below its Jan. 3 peak and firmly entering the second bear market since the pandemic began. What happens next? Bear markets — when stocks decline at least 20 percent from their recent peak — are relatively rare, but they frequently precede a recession, report The Times’s William P. Davis and Karl Russell along with DealBook’s Stephen Gandel. Premarket trading suggests U.S. stock markets could rebound slightly today. There is still some hope the Fed can strike the right balance between curbing rampant inflation and applying the brakes too aggressively on the U.S. economy. And it would be unusual for a recession to start at a time when unemployment is near its all-time low and demand keeps pushing prices higher. But right now, many are predicting a Fed overshoot, and eventually recession. The Fed is likely to discuss a big interest rate increase at its meeting this week, reports The Times’s Jeanna Smialek. Regaining some control over prices looks like an increasingly hairy challenge as wage growth remains strong, consumers continue to spend at a rapid clip and families begin to think that price increases might last. “Only way they can end this inflation is for the Fed to push demand off a cliff,” Rob Arnott, the head of Research Affiliates and one of the top strategists on Wall Street, tells DealBook. “Is the Fed going to destroy the economy in order to save it?”
Further reading:
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